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Crude Oil: What is the Future

This week’s Department of Energy report showed yet another build in crude oil production as inventories of US crude oil continue to grow to near record levels. Additionally, reports are coming in regularly telling of new crude oil finds, and the amounts of recoverable crude oil are growing unbelievably. It seems that with every new find, technologies are being developed to make them even more valuable, and all of a sudden, as one headline put it, “We are swimming in crude oil.” With ever increasing discoveries of natural gas and natural gas liquid reserves, and availability of our vast coal reserves; we are in a very different world than what we were told just ten short years ago.

Back in the Day, We Thought Ethanol was the Solution

In the early 2000’s, I was doing research for a series of talks on the need to add renewable fuels like ethanol to the retail fuel mix. Back then, it made sense to talk about renewables because there was an ever growing pile of stories, warning us of shrinking crude oil supplies and only a “finite” supply of oil left recoverable around the world. That was supposedly “settled science”. During a speech for a national commodity group in 2004, I remember telling the audience, the experts are now predicting that we have less than 50 years in recoverable crude oil reserves around the world. I felt like I was doing my part to convince people that products like ethanol needed to be developed to supplement our over burdened fuel supply. I was dead wrong, and so were the scientists that told us we were running out of our fossil fuels. Retailers and consumers alike were scared that falling reserves of crude oil could stall recovering economies, post 9-11. We didn’t see the financial crisis that loomed ahead in 2008, but understood we needed to do something fast. So we did our “Patriotic Best” and ushered in what we thought would be a great old fix: ethanol.

We were convinced that laying-in ethanol would extend the fuel supply while research was being conducted on several fronts to fix the shortfall. It is important to know that during that time, the renewables were only supposed to be a short term fix; fifteen years, max. Somewhere along the way, people started making big money investing in ethanol biorefineries. The number of plants exploded, and so did ethanol production; but it didn’t fix the problem of declining recoverable reserves, it only caused the amount of ethanol produced to spike and kill ethanol prices. For the record, it nearly toppled the entire ethanol industry... and big agriculture with it.

Here’s what happened: At the beginning of the year 2000, according to the Renewable Fuels Association, ethanol plants produced approximately 1.46 billion gallons of ethanol each year. In 2008, according to that same source, ethanol production had risen to 9 billion gallons, and by 2010 production had reached 13.72 billion gallons. Profits in ethanol were virtually nonexistent, and our quick fix was much shorter lived than we thought and we still didn’t fix the problem of declining recoverable crude oil reserves.

New Finds Changed the Picture!

During that same time, E & P companies here in the US and some from around the world went back to the drawing board and developed new technologies that made previously unrecoverable hydrocarbons, recoverable. As word of these new technologies began to spread, producers all around the US and abroad began to relook at their geology reports. In short order, they were discovering new reserves that would make a difference for a very long time.

In the last six months alone, there have been announcements identifying mind-boggling amounts of crude oil, natural gas and natural gas liquids. Here are just a few of the biggest to keep in mind:

If left to only the new production, we have rebalanced the world’s crude oil supplies. But we were working on all fronts, so let’s look at US crude oil imports during that same time. According to the Energy Information Association, in the year 2000, the US imported approximately 53% of its crude oil needs and that percentage grew by the year 2008 to 64%. Things were getting worse as we moved into another decade of the new millennium. Then, due to new technologies that developed, the new shale revolution production began to increase, and crude oil was flowing unrestricted. As a result, today we import only 39.9% of our demand, and we are now exporting crude oil once again.

We were all operating under the assumption that the US was becoming too dependent on foreign crude oil. With that premise in mind, US exploration and production companies went to work changing the game and all of a sudden, we had changed the story from just ten short years ago. We now have enough recoverable reserves to help us manage a growing economy and we’re importing less crude oil as an added bonus; so much for “Settled Science”.

Today, the United States is the world’s leading producer of fossil fuels, including crude oil, natural gas and coal. We lead the world in research developing new renewable fuels and energy sources that come from wind and solar. Combined, we provide the lifeblood of all growing economies, abundant cheap energy. Since we were able to change the story on running out of the world’s fossil fuel reserves in a short period of time, imagine what we can do with other problems. It just goes to show: Nothing is ever settled in science.

If you want more information on the energy markets and what is making prices move every day, go to our website www.crudefunders.com and scroll down to where it says “Subscribe”. There you will find our link to the daily commentary “Energy Wise”, a comprehensive piece that includes both fundamental and technical analysis of the day’s energy markets and provides you with the detail that you need. For more on Energy Economist Tim Snyder and his company, go to www.matadoreconomics.com .

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